Trading methods have evolved from a manually intensive process to a technology enabled, electronic platform. With the advent of electronic trading, a user or trader can be in virtually direct contact with the market, from practically anywhere in the world, performing near real-time transactions, and without the need to make personal contact with a broker. Electronic trading systems are also convenient for brokers on the floor at an exchange for sending and/or receiving orders electronically.
Electronic trading is generally based on a host exchange, one or more computer networks, and client devices. In general, the host exchange includes one or more centralized computers to form the electronic heart. Its operations typically include order matching, maintaining order books and positions, price information, and managing and updating a database that records such information. The host exchange is also equipped with an external interface that maintains uninterrupted contact to the client devices and possibly other trading-related systems.
In general, market participants or traders link to the host exchange through one or more networks. A network is a group of two or more computers linked together. There are many types of networks such as local area networks and wide area networks. Networks can also be characterized by topology, protocol, and architecture. For example, some market participants may link to the host through a direct connection such as a T1 or ISDN. Some participants may link to the host exchange through a combination of direct connections and other common network components such as high-speed servers, routers, and gateways. The Internet, a well-known collection of networks and gateways, can be used to establish a connection between the client device and the host exchange. There are many different types of networks and combinations of network types known in the art that can link traders to the host exchange.
Regardless of the way in which a connection is established, software running on the client devices allows market participants to log onto one or more exchanges and participate in at least one market. A client device is a computer such as a personal computer, laptop computer, hand-held computer, and so forth that has network access. In general, client devices run software that creates specialized interactive trading screens. Trading screens enable market participants to obtain market quotes, monitor positions, and submit orders to the host.
Generally, when an order is submitted to a host exchange, the host checks the limits of the order, for example price and quantity, and prioritizes the order with other orders of the same price. When buy and sell order prices cross in the market, a trade occurs.
If there is any measurable activity in a market, the matching of orders (similar to the example given directly above) generally occurs throughout the trading day. During which time, each host exchange provides a data feed to the client devices so that the traders can have access to the most current market information. In general, market information includes the inside market and market depth. The inside market is the lowest sell price (best offer or best ask) in the market and the highest buy price (best bid) in the market at a particular point in time. Market depth refers to quantity available at the inside market and can refer to quantity available at other prices away from the inside market. The quantity available at a given price level is usually provided in aggregate sums. In other words, a host exchange usually provides the total buy or the total sell quantity available in the market at a particular price level. Additionally, host exchanges can offer other types of market information such as the last traded price (LTP), the last traded quantity (LTQ), and/or order fill information.
To a trader, it is usually more desirable to have as much information as possible to successfully characterize a market. However, it becomes too bandwidth intensive and impractical to provide all (or most) of the market information necessary to describe a market in such great detail. Therefore, each host exchange carefully limits the amount of information they provide hoping to strike a balance between providing enough information to describe the market, but not too much to cause network downtime and/or anonymity. One way to limit the amount of information is to provide market information for price levels surrounding only the inside market. That is, a host exchange might provide market depth information for a handful of price levels around the inside market, whereas another exchange might provide market depth at only the inside market price levels. Another way to limit the amount of information is to reduce the content in the data feeds to contain only minimalist types of information such as price and quantity. As a result of limiting the amount of information, most data feeds do not provide order queue information, which as used herein is the number of orders at a host exchange waiting to be matched at a particular price level.
However, having access to order queue information can be very useful to a trader. This is especially true when the host exchange distinguishes the orders by time priority (e.g., a FIFO based system that matches orders on a first in, first out basis). To profit in electronic markets traders should have access to data, such as order queue information, which can be used to help them to make desirable trades.